Winter boat shows: who’s in a buying mood

Dealers are counting on deep discounts to save the season that is so critical to many bottom lines

Without a doubt, the 2008-2009 winter boat show season will go down as the most challenging in decades for dealers.

Never before, say retailers, have so many negative factors come together to potentially undercut sales. What’s more, this economic perfect storm follows four consecutive down years for the industry.

As 2009 begins, the economy is in recession. Credit markets remain tight, although they have loosened a bit since last fall. And rising unemployment, which reached a 15-year high of 7.2 percent in December, has left consumer confidence — perhaps the most important economic indicator for recreational marine sales — at an all-time low.

With the industry bracing for a possible fifth-straight year of declining sales, and many industry experts saying a turnaround won’t come until at least 2010, dealers have been hunkering down — paring costs while trying to generate revenue anywhere they can.

Early returns from the first of the major winter shows, the Dec. 13-21 New York National Boat Show, suggest attendance was down, although a final count wasn’t available as of early January.

Attendance and sales also were off at the few other shows already in the books, according to Phil Keeter, president of the Marine Retailers Association of America. But Keeter says there has been one bright spot:

Entry-level boats and related accessories appear to be selling better than expected.

He attributes that to the NMMA’s Discover Boating initiative.

“That program has been a success,” he says. “It just takes time for the buyers to make up their minds.”

Rock-bottom pricesFor the most part, retailers headed into the winter shows with a sense of urgency, hoping deep discounts and other incentives will drive sales.

“The vast majority of dealers out there are counting on the fact that they have to do business at the shows,” Keeter says. “They’re gearing up to do whatever is necessary, whether it means making better displays, contacting people better, having special parties in their booths or giving free tickets away; they’re doing anything they can to attract people to the shows.”

In fact, dealers are making what some of them admit are “once-in-a-lifetime” deals on new boats, and they’re not shy about promoting that fact. Manufacturers, dealers and show promoters are offering a host of incentives to attract crowds and, more importantly, serious shoppers. They include rebates, low-interest loans, free accessories and huge cash discounts and rebates offered by manufacturers and dealers alike.Show promoters also are pulling out all the stops.

The Central Florida Marine Trades Association is trying to attract crowds to its Central Florida Boat Show, which runs Feb. 19-22 at the Orange County Convention Center in Orlando, by touting never-before-seen deals, according to Joe Pozo, owner of Boat Tree, which operates three marine dealerships and a marina in Central Florida.

“We’re trying to get the word out that it’s not just a boat show, but a once-in-a-lifetime buying opportunity,” says Pozo. “Once the inventory is gone, the customer is never going to see this kind of pricing or values.”

Moving ‘non-currents’Much of what boaters attending winter shows will see are leftover new 2008s — known as non-currents in industry parlance. Many dealers in December were sitting with far more of them than they expected four months into the 2009 model year. While most show promoters severely limit the numbers of non-currents a dealer can exhibit, many of those restrictions have been eased or eliminated altogether. The NMMA, for example, is allowing dealers to show up to 50 percent clean 2008 models at its winter shows.

In response, dealers are dealing — even on 2009s. In addition to deep discounts, they’re offering other incentives such as free boating gear and free marina slips. Boat and engine makers are helping by sponsoring huge incentives, including large rebates.

Naturally, all of this is trimming margins, but retailers say they have little choice.

“People know it’s a buyer’s market, so they just beat us up on price,” says one California retailer, who asked to not be identified. “When a qualified buyer walks in, he can pretty much dictate the terms of the deal. And who can blame him in this economy?” Obviously, the extent to which that statement is accurate beyond the one retailer’s experience is going to vary from dealer to dealer and brand to brand.More vital than everThe good news in all of this for promoters is that retailers appear more committed than ever to the winter shows. Traffic in many showrooms is down dramatically from a year ago. Some dealers interviewed for this story say sales last year were off 50 percent, with most of that decline coming in the second half.

The shows, dealers say, offer them the best opportunity to connect with serious prospects. “I think the boat shows for the existing buyers are probably the most important thing we can do this year,” says Larry Tague, owner of Lake Viking Marine in Gallatin, Mo.

Ed Lofgren, president of 3A Marine Service in Hingham, Mass., agrees.

“We consider our Boston shows to be critically important this coming year,” he says, pointing to the New England Boat Show (Feb. 14-22 at the Boston Convention and Exhibition Center), and the Boston International In-Water Boat Show, which runs in October at Boston’s World Trade Center. “While attendance could be down due to our economic troubles, characteristically, those who do attend represent serious boat shoppers. Thus, we have opportunity.”

That may be, but increasingly dealers complain that more and more people shopping the shows don’t feel compelled to buy there. So the winter shows are becoming the first or second step in a buying process that can take months, especially for larger boats. That could be especially true this year, since anyone serious about buying a boat will have plenty of models (and plenty of incentives) to choose from. It’s all about contactsIn response, many dealers use the winter shows to connect with customers and give out information. “We don’t focus at a show on selling,” says Steve Baum, president of Boat Owners Warehouse in Fort Lauderdale. “We focus more on talking to customers, getting a catalog in their hands, and getting them into the store.”

BOW largely sells accessories and smaller watercraft under 12 feet. In addition to three retail locations in Florida, it sells products on the Internet.

Baum says he will exhibit at two South Florida shows this season, as well as the Dania Flea Market.

“We use it as a way to get rid of our overstock and scratch-and-dent merchandise,” Baum says. “It’s been very effective.”

Working the phonesFor Jason Padgett, who with his father owns Modern Marine in Nashville, Tenn., the Nashville Boat & Sport Show (Jan. 7-11 at the Nashville Convention Center) is critical to the dealership’s annual results.

“We feel like we have to have a presence there, even if it has been a slow year,” says Padgett, adding that his dealership will display 35 boats this year. “We put a lot of effort into it.”

This is a small dealership selling about 150 boats a year, and the boat show accounts for a large part of that business. “Last year, we sold 18 to 20 boats at the show,” says Padgett, adding that many sales originate there and close in the weeks and months that follow.

In advance of the show, the Padgetts make hundreds of prospect calls.

“We don’t sit and wait for them to come to us,” he says. “We’re proactive in our preparation, and that’s a big reason for our success at the show.”

Like many dealers around the country, Padgett plans major incentives at this year’s show. Among them is a week’s stay at his family’s beach house in Destin, Fla.

“In the past … everybody who bought a boat put their name in a hat, and we’d draw out one customer to spend a week at the beach house,” he says. “This year, we’re saying anybody who buys a boat over 20 feet long at the show gets a free week at our house in Destin.”

Lauderdale surprisesBased on the results some dealers saw in the fall, there may be reason for optimism about the winter shows. Crowds at the all-important Fort Lauderdale International Boat Show, for example, were better than many expected, although overall attendance was down, according to Efrem “Skip” Zimbalist III, chairman and CEO of Active Interest Media, parent company of Show Management, which produces the show.

At least one retailer was pleasantly surprised by the business generated there. Sales for industry leader MarineMax exceeded expectations, according to chairman, president and CEO Bill McGill, although he quickly admits those expectations were low to begin with.

Still, he says he is pleased with the quality of the customers who attended the fall shows at which the company exhibited.

“The boaters are still there,” he says. “The lookers didn’t come.”

Still, McGill says his company is exhibiting at fewer shows and has reduced booth sizes as part of an effort to focus more energy on its getaways and other company-sponsored events.

“At the end of the day, most of the people we see at boat shows we’re talking to anyway,” he says. “And so, [the shows] are not bringing in new prospective buyers.”

Space rates cutGiven the state of the recreational marine market, show promoters are facing huge challenges attracting exhibitors, as well as the all-important crowds. Most exhibitors are reducing booth space. And, they’re holding off to the last minute to forward cash deposits.

In response, promoters in many areas have had to reduce space rates. Ben Wold, executive vice president of shows at the NMMA, the largest of the producers, says rates were cut at several of the association’s 19 winter shows, including New York. There, rates were trimmed by 31 percent to $10 per square foot from $14.45. “Given the current market and exhibitor uncertainty over the new December dates, we felt we needed to do something to help our exhibitors,” Wold says.

However, promoters also are benefiting from the soft economy, finding it easier to negotiate deals on the supplies and services they need. As an example, Wold says carpet installation costs at the Atlanta Boat Show (Jan. 14-18) have been cut by 35 percent, thanks to the sluggish market. He says the NMMA is looking everywhere it can to trim show costs, and is passing along those savings to exhibitors.

One area where the NMMA isn’t cutting costs is in the boat show PR/marketing budget, which Wold says will top $6 million this year. “We know we have to do everything we can to attract good crowds,” he says.

An easing of creditAs show season was gearing up, credit markets appeared to be settling down a little. The $700 billion available to help troubled banks under the Troubled Asset Relief Program, which Congress approved Oct. 3, was beginning to open up credit lines. That’s good news for the recreational marine industry, where in 2008 several key lenders, including KeyBank and Wachovia, quit the market.

The good news from marine lenders in December was that credit is available to fund consumer boat purchases. However, it is pretty much limited to those with the best credit histories.

“The money is still there,” says Dave Blancett, head of Yacht Risk Management in Friendswood, Texas, and a former president of the National Marine Bankers Association. “What’s changed is lending practices have gone back to what they were 10 years ago.”

Collateral and individual credit standards have been tightened, which squeezes out marginal buyers.

“Because of the downturn, the value of the collateral has decreased, which means down payments are especially important today,” says Karen Trostle, president of Sterling Acceptance Corp. in Annapolis, Md. “The days of 100 percent financing are probably gone.”

Just like the old daysBuyers need to put at least 10 percent down, with more and more lenders requiring down payments of up to 20 percent. And lenders are requiring proof of the down payment. “Banks are asking for copies of bank statements, or checks at settlement or verification of wire transfers,” Trostle says. “People are making great deals right now, and if a boat is worth, say, $100,000, they may be getting it for $80,000; so banks just want to be sure that down payments are being made.”

Buyers also will need to supply more documentation. Purchasers of larger boats applying for loans of $100,000 or more also may be required to show a history of having paid a loan of that size. “Banks want to see proof that a borrower has a history of handling large loans responsibly,” Trostle says.

Maximum loan terms, which for larger boats have topped out at 20 years, also have been shortened in some cases. And more and more lenders won’t make loans on boats that are more than 15 or 20 years old, the lending experts say. “They’re also looking at the quality of the collateral harder,” Trostle adds.

If all this sounds onerous, lenders respond by saying that they’re simply going back to the basics.

“This isn’t anything bad,” says Jim Coburn, president of NMBA and first vice president of consumer lending at Flagstar in Troy, Mich. “It’s just getting back to doing things the right way.”